Since then, it has expanded at record speed into a vast Universe – perhaps its best metaphor. 45 years since the “Big Bang” of the invention of the microprocessor and 20 years since the “Origin of Life” in the Internet, we are perhaps just at the beginnings of an evolutionary curve whose ultimate trajectory remains unknown. Today, half the world's population is online, a third are on a social network, 53% are mobile, and they span all ages, races, geographies and attitudes across the planet. The culmination of this explosion in consumer connectivity is the Digital Economy. A young, dynamic, $3 trillion ecosystem based on technological infrastructure, increasingly intuitive devices and interfaces, vast audience networks, a whole new medium for advertising and an unlimited supply of content.

It has disrupted age old industries while giving rise to completely new ones. It has upended the way brands are built. It has transformed the economics of celebrity. It has added a unique enigma to the generation of our youngest adults, the revered Millennials. It has become the top issue in boardrooms across industries around the world.

Not surprisingly, few topics engender more analysis, opinion and punditry than “Digital.” I ran a quick search on “the Digital Economy” and
Google returned over 48 million results ranging from MIT’s Initiative on the Digital Economy to policy papers and Wikipedia articles. It’s certainly a vast universe out there.

As with anything, as go the economics so go the business models. So let's follow the money.

The Digital Economy is worth almost three trillion dollars today. To put it in context, this is about 30% of the S&P 500, six times the U.S.’ annual trade deficit or more than the GDP of the United Kingdom. What’s more is that this entire value has been generated in the past 20 years since the launch of the Internet.

It has consolidated value at record speed. The path to half a trillion in 20 years or less is an extremely impressive feat – American free enterprise at its finest. It means every single member of the Digital Economy was a startup less than two decades ago. But equally interesting is how rapidly the path from startup to value consolidation has been. The Digital Economy may still be in its adolescence but 9 companies currently generate 90% of its revenue and profits –
Apple,
Google,
Facebook and Amazon (popularly known as the “four horsemen”),
Microsoft, and the four Chinese digital giants. Everyone else you’ve heard about or think you’ve heard about (for example,
Yahoo!, Twitter, eBay, Snapchat, Pinterest, Uber or others) is barely over 10% of this economy.

There is a bubble in there somewhere. A simple comparison of the market cap vs. revenue vs. operating profit generation of the top-25 digital companies reveals a few key insights: Devices & Interfaces generate the majority of the profits but command just over a third of the value, Search earns its keep, while Social Media and e-Commerce underperform compared to their current valuations. Finally, Content, for all it's press and influence, is but a blip in the landscape.

What are some of the underlying causes of this historic path to digital value? The answer sets up interesting dynamics and implications for current and future players looking to claim their space in this dynamic sector. In this series, I look forward to breaking it all down.

The views expressed here are my own and are not endorsed by current or former employers, publishers or clients.